Section 55A valuation challenge fails where declared cost is not below fair market value for capital gains computation.

Section 55A(a) of the Income-tax Act, as it stood before the Finance Act, 2012 amendment effective from 01.07.2012, could not be used to reject a registered valuer's report where the declared cost of acquisition was not shown to be lower than fair market value. In that position, the tax authorities lacked a legal basis to disturb the assessee's valuation for computing long-term capital gains. The assessment and first appellate orders, which relied on such rejection, were therefore unsustainable on the stated facts and legal position.

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Issues: Whether the authorities could reject the assessee's registered valuer's report for computing long-term capital gains by invoking section 55A(a) of the Income-tax Act, 1961, for the relevant assessment year.

Analysis: The assessment and first appellate orders proceeded on a rejection of the registered valuer's report used for determining the cost of acquisition in the capital gains computation. Section 55A(a), as applicable before its amendment by the Finance Act, 2012 with effect from 01.07.2012, could not be invoked where the declared cost of acquisition was not shown to be less than the fair market value. On that footing, the departmental authorities had no legal basis to disturb the assessee's valuation for the relevant period.

Conclusion: The rejection of the registered valuer's report and the resulting computation of long-term capital gains were unsustainable, and the issue was decided in favour of the assessee.

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